STRATEGIC MANAGEMENT 20MBA25

STRATEGIC MANAGEMENT

Subject Code: 20MBA25 IA Marks: 40

No. of Lecture Hours / Week: 04 Exam Hours: 03
Total Number of Lecture Hours: 50 Exam Marks: 60
Practical Component: 01 Hour / Week

Objectives:
• To explain core concepts in strategic management and provide examples of their relevance and use
by actual companies
• To focus on what every student needs to know about formulating, implementing and executing
business strategies in today’s market environments
• To teach the subject using value-adding cases that features interesting products and companies,
illustrate the important kinds of strategic challenges managers face, embrace valuable teaching points
and spark student’s interest.

Unit 1
Meaning and Nature of Strategic Management, its importance and relevance. Characteristics of
Strategic Management. The Strategic Management Process. Relationship between a Companies’
Strategy and its Business Model.

Unit 2
The Strategically relevant components of a Company’s External Environment – Industry Analysis –
Industry Analysis – Porter’s dominant Economic features – Competitive Environment Analysis –
Porter’s Five Forces model – Industry diving forces – Key Success Factors – concept and
implementation.

Unit 3
Describe Strategic Vision, Mission, Goals, Long Term Objectives, Short-Term Objectives and Discuss
Their Value to the Strategic Management Process, Resources, Capabilities, Competencies, Resource
Based View of the firm (RBV), Balanced Score Card, SWOC Analysis, Value Chain Analysis,
Benchmarking.

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Unit 4
Business Strategies –Porter’s Generic Strategies: Low Cost, Differentiation, Best Cost, Focused Low
Cost and Focused Differentiation, Corporate Strategies – Growth Strategies (Internal Growth, External
Growth, Integration, Diversification, Mergers, Strategic Alliances), Ansoff’s Matrix, Stability
Strategies (No-Change, Profit and Proceed With Caution), Retrenchment Strategies (Turnaround,
Divestment and Liquation), International Business Level Strategies.

Unit 5
Strategy Implementation -Organisational Structure, Strategic Leadership and Organisational Culture
Strategy and Innovation - Introduction to Innovation: Process, Product and Platform; Creative
Destruction and Disruptive Technologies; Designing Organizations for Innovation; Innovation
Environments: Institutional Innovation and Environments, The Co-creation of Value, Open Innovation
and Open Strategy, National Innovation Systems, Learning Networks and Clusters, Social Innovation.

Unit 6
Strategic Control: Focus of Strategic Control, Establishing Strategic Controls (Premise Control,
Strategic Surveillance, Special Alert Control, Implementation Control), Exerting Strategic Control
(through Competitive Benchmarking, Performance and Formal and Informal Organizations). Case
study on Strategic Control.

RECOMMENDED BOOKS:
• Crafting and Executing Strategy, Arthur A. Thompson Jr., AJ Strickland III, John E Gamble, 18/e,
Tata McGraw Hill, 2012.
• Strategic Management, Alex Miller, Irwin McGraw Hill
• Strategic Management - Analysis, Implementation, Control, Nag A, 1/e, Vikas, 2011.
• Strategic Management - An Integrated Approach, Charles W. L. Hill, Gareth R. Jones, Cengage
Learning.
• Business Policy and Strategic Management, Subba Rao P, HPH.
• Strategic Management, Kachru U, Excel BOOKS, 2009.

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REFERENCE BOOKS:
• Strategic Management: Concepts and Cases, David R, 14/e, PHI.
• Strategic Management: Building and Sustaining Competitive Advantage, Robert A. Pitts & David
Lei, 4/e, Cengage Learning.
• Competitive Advantage, Michael E Porter, Free Press NY
• Essentials of Strategic Management, Hunger, J. David, 5/e, Pearson.
• Strategic Management, Saroj Datta, jaico Publishing House, 2011.
• Business Environment for Strategic Management, Ashwathappa, HPH.
• Contemporary Strategic Management, Grant, 7/e, Wiley India, 2012
• Strategic Management-The Indian Context, R. Srinivasan, 4 th edition, PHI

CONTENTS

Unit No. Particulars

1 Introduction to strategic Management
2 The Strategy Formulation
3 Analyzing a Company’s External Environment
4 Analyzing a company’s resources & Generic Competitive Strategies
5 Business Planning in different environments
6 Strategy Implementation

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UNIT – I
MEANING AND NATURE OF STRATEGIC MANAGEMENT

“Without a strategy, an organization is like a ship without a rudder, going around in-circles. It’s
like a tramp; it has no place to go.”

Meaning and Nature of Strategic Management

According to Wheelen and Hungers
Strategic management is a set of managerial decisions and actions that determines the long-term
performance of a corporation. It involves environmental scanning (both external and internal), strategy
formulation (strategic or long range planning), strategy implementation, and evaluation and control.

Strategic management is a process that combines three major interrelated activities: strategic
analysis, strategy formulation and strategy implementation.

In other words, strategy is about:

How:
 How to outcompete rivals.
 How to respond to economic and market conditions and growth opportunities.
 How to manage functional pieces of the business.
 How to improve the firm’s financial and market performance.

Characteristics of SM
1. Uncertain: SM deals with future oriented, non routine situation. They create uncertainly.
Managers are unaware about consequences of their decision.
2. Long term issue: It deals with long term issue that may or may not have an immediate effect
3. Complex: Uncertainty brings complexity for SM. Managers face environment which is
difficult to comprehend. External and internal environment is analyzed
4. Fundamental: SM is fundamental for improving the long term performance of the organization
5. Long term implication: SM is not concerned with day to day operation. It has long term
implications. It deals with vision, mission and objective. It ensures that strategic is put into
action.
6. Organization-wide: SM had wide implication. It is not operation specific. It is system approach
.It involves strategic choice
7. Competitive Advantage: It helps manager find new sources of sustainable competitive
advantage. Executives apply the principles of SM in their work continuously try to deliver
products or service.
8. Effect of operation: Always has a sizable effect on operational issues.

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Nature of Strategic Management

Strategic management is an ongoing and continuous process

 Strategic management is a process which determines whether an organization excels, survives,
or dies.
 All organizations engage in the strategic management process either formally or informally.
Strategic management is equally applicable to public, private, not-for-profit, and religious
organizations.
 Strategic management focuses on integrating management, marketing, finance/accounting,
production/operations, research and development, and computer information systems to
achieve organizational success
 Strategic management aids to exploit and create new and different opportunities for tomorrow;
long-range planning, in contrast, tries to optimize for tomorrow the trends of today.

Strategic management is both an Art and science

Strategic management is both an Art and science of formulating, implementing, and evaluating,
cross-functional decisions that facilitate an organization to accomplish its objectives. The purpose of
strategic management is to use and create new and different opportunities for future. The nature of
Strategic Management is dissimilar form other facets of management as it demands awareness to the
"big picture" and a rational assessment of the future options. It offers a strategic direction endorsed by
the team and stakeholders, a clear business strategy and vision for the future, a method for
accountability, and a structure for governance at the different levels, a logical framework to handle
risk in order to guarantee business continuity, the capability to exploit opportunities and react to
external change by taking ongoing strategic decisions.

Importance of Strategic Management

 Analyzing stakeholder views
 Formulating a strategy
 Implementing the strategy
 Set up monitoring and reporting
 Setting detailed goals
 Analyzing all our internal and external resources
 Analyzing our external environment - the marketplace

Benefits and Relevance of Strategic Management

Financial Benefits-profits, sales, and return on assets

Non financial Benefits

1. It provides a way to anticipate future problems and opportunities.

2. It provides employees with clear objectives and directions for the future of the organization.

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3. It results in more effective and better performance compared to non-strategic management

organizations.

4. It increases employee satisfaction and motivation.

5. It results in faster and better decision making and

6. It results on cost savings.

Intended Strategy: The original strategy, the top management plans and intends to implement.

Realized Strategy: The strategy that top management actually implements.

Hence, the original strategy may be realized with desirable or undesirable results, or it may be
modified as changes in the firm or environment become known.

FORMAL PLANNING
Systematic & Regular Planning department/cells manned by people with knowledge and experience in
“different aspects and dimensions of planning” at organizational level.

INFORMAL PLANNING:
Is common with small enterprises, and sometime with one man dominated not so small enterprises, is
often done in a casual way.

POLICY:
It is a broad, general guide to action which compels or directs goal attainment. Policies do not
normally dictate what action should be taken, but they do provide the boundaries within the objectives
must be pursued. Thus, policies serve to channel and guide the implementation of strategies. Actions
should be in line with the policy and not vice-versa.

STRATEGY AND TATICS:

Strategy:
Defined as a game plan, which can help organization to achieve its mission and objectives.
Long-range details, unstructured in nature

Tactical Planning
Refers to short-range planning that is oriented towards operations and is concerned with specific and
short-range details
Short-range details, structured in nature

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BASIS FOR TACTICS STRATEGY

COMPARISON

Meaning A carefully planned A long range blue print of an

action made to organization's expected image and
achieve a specific destination is known as Strategy.
objective is Tactics.

Concept Determining how the An organized set of activities that can

strategy be executed. lead the company to differentiation.

Nature Preventive Competitive

What is it? Action Action plan

Focus on Task Purpose

Formulated at Middle level Top level

Risk involved Low High

Approach Reactive Proactive

Flexibility High Comparatively less

Orientation Towards the present Future oriented

conditions

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The Strategic management Process

Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and

providing information for strategic purposes. It helps in analyzing the internal and external factors
influencing an organization. After executing the environmental analysis process, management should
evaluate it on a continuous basis and strive to improve it.
Strategy Formulation- Strategy formulation is the process of deciding best course of action for
accomplishing organizational objectives and hence achieving organizational purpose. After conducting
environment scanning, managers formulate corporate, business and functional strategies
Strategy Implementation- Strategy implementation implies making the strategy work as intended or
putting the organization’s chosen strategy into action. Strategy implementation includes designing the
organization’s structure, distributing resources, developing decision making process, and managing
human resources.
Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key
strategy evaluation activities are: appraising internal and external factors that are the root of present
strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure
that the organizational strategy as well as its implementation meets the organizational objectives.

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DEVELOPING A STRATEGIC VISION: PHASE 1

A strategic vision describes the route a company intends to take in developing and strengthening its
business. It lays out the company’s strategic course in preparing for the future

A clearly articulated strategic vision communicates management’s aspirations to stakeholders and

helps steer the energies of company personnel in a common direction.
A strategic vision proclaiming management’s quest “to be the market leader” or “to be the first choice
of customers” or “to be the most innovative” or “to be recognized as the best company in the industry”
Strategic vision to function as a valuable managerial tool, it must
(1) Provide understanding of what management wants its business to look like
(2)Provide managers with a reference point to
 Make strategic decisions
 Translate the vision into hard-edged objectives and strategies
 Prepare the company for the future

Key Elements of a Strategic Vision

Delineate management’s aspirations for the business.
Provides a panoramic view of “where we are going”.
Charts a strategic path.
Is distinctive and specific to a particular organization.
Avoids use of generic language that is dull and boring and that could apply to most any
company.
Captures the emotions of employees and steers them in a common direction.
Are challenging and a bit beyond a company’s immediate reach.
Purpose of setting objectives
 Converts vision into specific performance targets
 Creates yardsticks to track performance

Understanding the Payoffs of a Clear Vision Statement

In sum, a well-conceived, forcefully communicated strategic vision pays off in several respects:
(1) It crystallizes senior executives’ own views about the firm’s long-term direction
(2) It reduces the risk of rudderless decision making
(3) It is a tool for winning the support of organizational members for internal changes that will help
make the vision a reality
(4) It provides a beacon for lower-level managers in forming departmental missions, setting
departmental objectives, and crafting functional and departmental strategies that are in sync with the
company’s overall strategy
(5) It helps an organization to prepare for the future

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Characteristics of an Effectively Worded Strategic Vision

Graphic: Paints a picture of the kind of company that management is trying to create and the market
position(s) the company is striving to stake out.
Directional: Is forward-looking; describes the strategic course that management has charted and the
kinds of product/market/customer/technology changes that will help the company prepare for the
future.
Focused: Is specific enough to provide managers with guidance in making decisions and allocating
resources.
Flexible: Is not a once-and-for-all-time statement—the directional course that management has
charted may have to be adjusted as product/market/ customer/technology circumstances change.
Feasible: Is within the realm of what the company can reasonably expect to achieve in due time.
Desirable: Indicates why the chosen path makes good business sense and is in the long-term interests
of stakeholders (especially share owners, employees, and customers).
Easy to communicate: Is explainable in 5–10 minutes and, ideally, can be reduced to a simple,
memorable slogan (like Henry Ford’s famous vision of “a car in every garage”).

SETTING OBJECTIVES: PHASE 2

The managerial purpose of setting objectives is to convert the strategic vision into specific
Performance targets—results and outcomes the company’s management wants to achieve.
Well-stated objectives are
1. Quantifiable
2. Measurable: measurable objectives are managerially valuable because they serve as yardsticks for
tracking a company’s performance and progress.
3. Contain a deadline for achievement
Spell-out how much of what kind of performance by when
Importance of Setting Stretch Objectives
Objectives should be set at levels that stretch an organization to
 Perform at its full potential, delivering the best possible results
 Push firm to be more inventive
 Exhibit more urgency to improve its business position
 Be intentional and focused in its actions
Both Short-Term and Long-Term Objectives Are Needed
Short-term objectives
 Targets to be achieved soon
 Milestones or stair steps for reaching long-range performance targets
Long-term objectives
 Targets to be achieved within 3 to 5 years
 Calls for actions now that will permit reaching targeted long-range performance later
Objectives Are Needed at All Levels
The objective-setting process is more top-down than bottom up
1. First, set organization-wide objectives and performance targets

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2. Next, set business and product line objectives

3. Then, establish functional and departmental objectives
4. Individual objectives are established last.

CRAFTING A STRATEGY: PHASE 3

The task of crafting a strategy entails answering a series of how’s
How to grow the business
How to please customers
How to outcompete rivals
How to respond to changing market conditions,
How to manage each functional piece of the business and develop needed competencies and
capabilities.
How to achieve strategic and financial objectives.
Strategy-making involves astute entrepreneurship
 Actively searching for opportunities to do new things
or
 Actively searching for opportunities to do existing things in new or better ways
Strategizing involves
 Developing timely responses to happenings in the external environment
and
 Steering company activities in new directions dictated by shifting market conditions
Crafting a Good Strategy Requires Good Business Entrepreneurship
Developing a winning strategy involves
 Diagnosing the direction and force of the market changes underway and making timely
strategic adjustments
 Spotting new or better ways to satisfy customer needs
 Figuring out how to outwit and outmaneuver competitors
 Pursuing ways to strengthen the firm’s competitive capabilities
 Proactively trying to out-innovate rivals
Who Is Involved in Strategy Making
CEO (chief executive officer)
 Has ultimate responsibility for leading the strategy-making process
 Functions as strategic visionary and chief architect of strategy
Senior executives
 Typically have influential roles in fashioning those strategy components involving their
areas of responsibility
Managers of subsidiaries, divisions, geographic regions, plants, and other important operating
units (and, often, key employees with specialized expertise)

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IMPLEMENTING AND EXECUTING STRATEGY: PHASE 4

Managing the implementation and execution of strategy is an operations-oriented, make-things-happen
activity aimed at performing core business activities in a strategy supportive manner.
It is easily the most demanding and time-consuming part of the strategy.
Converting strategic plans into actions and results tests a manager’s ability to direct organizational
change, motivate people, build and strengthen company competencies and competitive capabilities,
create and nurture a strategy-supportive work climate, and meet or beat performance targets.

Each company manager has to think through the answer to

 What has to be done in my area to execute my piece of the strategic plan
 What actions should I take to get the process under way?”
 How much internal change is needed depends on how much of the strategy is new,
 How far internal practices and competencies deviate from what the strategy requires
 how well the present work climate/culture supports good strategy

Execution process includes the following principal aspects:

Building a capable organization

Allocating resources to strategy-critical activities
Establishing strategy-supportive policies
Instituting best practices and programs for continuous improvement
Installing information, communication and operating systems
Motivating people to pursue the target objectives
Tying rewards to achievement of results
Creating a strategy-supportive corporate culture
Exerting the leadership necessary to drive the process forward and keep improving.

EVALUATING PERFORMANCE AND MAKING CORRECTIVE ADJUSTMENTS :PHASE 5

The fifth phase of the strategy management process—monitoring new external developments,
evaluating the company’s progress, and making corrective adjustments—is the trigger point for
deciding whether to continue or change the company’s vision, objectives, strategy, or strategy
execution methods. So long as the company’s direction and strategy seem well matched to industry
And competitive conditions, and performance targets are being met, company executives may well
decide to stay the course.
If a company experiences a downturn in its market position or persistent short falls in performance,
then company managers are obligated to ferret out the causes—do they relate to poor strategy, poor
strategy execution, or both?—and take timely corrective action.

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LEVELS OF STRATEGY

Corporate strategy: Consists of the kinds of initiatives the company uses to establish business
positions in different industries, the approaches corporate executives pursue to boost the combined
performance of the set of businesses the company has diversified into, and the means of capturing
cross-business synergies and turning them into competitive advantage. Senior corporate executives
normally have lead responsibility for devising corporate strategy. Major strategic decisions are usually
reviewed and approved by the company’s board of directors.
Business strategy: concerns the actions and the approaches crafted to produce successful performance
in one specific line of business.
The key focus is crafting responses to changing market circumstances and initiating actions to
strengthen market position, build competitive advantage, and develop strong competitive Capabilities.
The business head has at least two other strategy-related roles:
(a) Seeing that lower-level strategies are well conceived, consistent, and adequately matched to
the overall business strategy,
(b) Getting major business-level strategic moves approved by corporate-level officers (and
sometimes the board of directors) and keeping them informed of emerging strategic issues.
Functional-area strategies: Concern the actions, approaches, and practices to be employed in
managing particular functions or business processes or key activities within a business.
A company’s marketing strategy, for example, represents the managerial game plan for running the
sales and marketing part of the business.
Functional strategies add specifics to the how’s of business level strategy; they aim at establishing or
strengthening a business unit’s competencies and capabilities in performing strategy-critical activities
so as to enhance the business’s market position and standing with customers.
The primary role of a functional strategy is to support the company’s overall business strategy and
competitive approach.

Strategic Plan: A Strategic Vision + Objectives + Strategy

Strategic planning is a process in which organizational leaders determine their vision for the
future as well as identify their goals and objectives for the organization.
A strategic plan lays out the company’s future direction, performance, targets, and strategy.

WHAT IS A BUSINESS MODEL?

A business model addresses “How do we make money in this business?”
 Is the strategy capable of delivering good bottom-line results?
Do the revenue-cost-profit economics of the strategy make good business sense?
 Look at revenue streams the strategy is expected to produce
 Look at associated cost structure and potential profit margins
 Do resulting earnings streams and ROI indicate the strategy makes sense and the
company has a viable business model for making money?

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Examples of Business Model

Magazine and news paper employ a business model based on generating sufficient subscription
and advertising to cover the cost of delivering their product to readers.
Wall-mart has perfected the business model for big-box discounts.
Gillette’s business model in razor blades involves selling the razors at low price
Example: Business Model for Dominos Pizza
– Infrastructure (larger presence, fast delivery)
– Offerings (Pizza at Rs. 99/-)
– Customers (Lower and middle income group, franchisees, good services)
– Finances (Reduction in Cost through innovative practices, Economies of Scale

COMPANY’S STRATEGY:
Relates broadly to its competitive initiatives and action plan for running the business (but it may or
may not lead to profitability)
 How to grow the business
 How to please customers
 How to outcompete rivals
 How to respond to changing market condition
 How to achieve targeted levels of performance

RELATIONSHIP BETWEEN STRATEGY AND BUSINESS MODEL

A company’s business model is management’s story line for how the strategy will be a moneymaker.
The story line sets forth the key components of the enterprise’s business approach, indicates how
revenues will be generated and makes a case for why the strategy can deliver value to customers in a
profitable manner.
A company’s business model thus explains why its business approach and strategy will generate ample
revenues to cover costs and capture a profit.
Deals with a company’s competitive initiatives and business approaches.

Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate a
business can be profitable and viable

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